* PM May's government under pressure over fate of Carillion (Adds reaction, background)

LONDON, Jan 15 (Reuters) - Britain's Carillion collapsed on Monday after its banks lost faith in the construction and services company, throwing hundreds of major projects into doubt and forcing the government to step in to guarantee vital public services.

Carillion was forced into compulsory liquidation after costly contract delays and a slump in new business left it at the mercy of its lenders and battling a ballooning debt pile.

The demise of the 200-year-old business poses a major headache for Theresa May's government which has employed Carillion to work on 450 projects including the building and maintenance of hospitals prisons, defence sites and the country's new superfast rail line.

"In recent days we have been unable to secure the funding to support our business plan and it is therefore with the deepest regret that we have arrived at this decision," Chairman Philip Green said.

"This is a very sad day for Carillion, for our colleagues, suppliers and customers that we have been proud to serve over many years."

Employing 43,000 people around the world, including 20,000 in Britain, Carillion has been fighting for survival since July when it revealed it was losing cash on several projects and had written down the value of its contract book by 845 million pounds ($1.16 billion).

With banks refusing to accept the group's latest attempt to restructure, May's senior ministers met around the clock in recent days, under pressure from the opposition Labour Party and unions not to use taxpayer money to prop up the failing company.

"SAD DAY"

Carillion has debt and liabilities of 1.5 billion pounds with creditors that include banks RBS, Santander UK, HSBC and others. It has a pension deficit, included within that figure, of 580 million pounds.

David Lidington, the minister in charge of the Cabinet Office which oversees the running of government, said his first priority was to ensure that public services continued. He urged the company's staff to continue to work and said the government would pay their salaries.

Some contracts handled by Carillion would go to alternative providers, he added.

The company's collapse comes at a difficult time for the government as it negotiates its exit from the European Union.

"It is regrettable that Carillion has not been able to find suitable financing options with its lenders but taxpayers cannot be expected to bail out a private sector company," Lidington said in a statement.

"For clarity, all employees should keep coming to work, you will continue to get paid. Staff that are engaged on public sector contracts still have important work to do."

Labour's business spokeswoman Rebecca Long-Bailey called for a full investigation as to why the government continued to award Carillion contracts when it was clear it was in trouble.

"This company issued three profit warnings in the last six months yet despite those profit warnings the government continued to award government contracts to this company," she told BBC TV.

"We're ... asking for a full investigation into the government conduct of this matter."

Spun out of Tarmac nearly 20 years ago and having bought Alfred McAlpine in 2008, Carillion has worked on key construction projects including London's Royal Opera House, the Suez Canal road tunnel and Toronto's Union Station.

In July last year it won contracts to build Britain's new High Speed 2 rail line, a major project that will better connect London with the north of England. ($1 = 0.7280 pounds)